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Consumption Choice and Asset Pricing with a Non-Price-Taking Agent

Suleyman Basak
Economic Theory
Vol. 10, No. 3 (Oct., 1997), pp. 437-462
Published by: Springer
Stable URL: http://www.jstor.org/stable/25055051
Page Count: 26
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Consumption Choice and Asset Pricing with a Non-Price-Taking Agent
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Abstract

This paper develops a pure-exchange model to study the consumption-portfolio problem of an agent who acts as a non-price-taker, and to analyze the implications of his behavior on equilibrium security prices. The non-price-taker is modeled as a price leader in all markets; his price impact is then recast as a dependence of the Arrow-Debreu prices on his consumption, allowing a tractable formulation. Besides the aggregate consumption, the endowment of the non-price-taker appears as an additional factor in driving equilibrium allocations and prices. Comparisons of equilibria between a price-taking and a non-price-taking economy are carried out.

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